The New Message From The Fed: WE ARE JAPAN

This was no accident, and a Fed governor doesn't write such a mammoth, crucial piece when he's going desperado.

You don't need to understand much about monetary policy or technical jargon to get the gist of the paper, which is: WE ARE JAPAN.

The word "Japan" is on nearly every page of the paper, and the conclusion makes it all dead obvious:

The global economy continues to recover from the very sharp recession of 2008 and 2009. During the recovery, the U.S. economy is susceptible to negative shocks which may dampen ináation expectations. This could possibly push the economy into an unintended, low nominal interest rate steady state. Escape from such an outcome is problematic. Of course, we can hope that we do not encounter such shocks, and that further recovery turns out to be robustó but hope is not a strategy. The U.S. is closer to a Japanese-style outcome today than at any time in recent history. In part, this uncomfortably close circumstance is due to the interest rate policy being pursued by the FOMC. That policy is to keep the current pol- icy rate close to zero, but in addition to promise to maintain the near-zero interest rate policy for an ìextended period.î But it is even more than that, because the reaction to a negative shock in the current environment is to extend the extended period even furtheró delay the day of normalization of the policy rate farther into the future. This certainly seems to be the implication from recent events. When the European sovereign debt crisis rattled global Önancial markets during the spring of 2010, it was a negative shock to the global economy, and the private sector perception was certainly that this would delay the date of U.S. policy rate normalization. One might think that is a more ináationary policy, but TIPS-based measures of ináation expectations over Öve and ten years fell about 50 basis points.